Warren Buffett pointed out a key difference between himself and Wall Street in his latest letter to shareholders of Berkshire Hathaway (NYSE: BRK.A) (NYSE: BRK.B). He noted that he doesn’t use earnings before interest, taxes, depreciation, and amortization (EBITDA), referring to the financial metric as “a flawed favorite of Wall Street.”
This divergent take on EBITDA reflects just the tip of the iceberg of what could be described as diametrically different perspectives. Does Buffett know something Wall Street doesn’t? The answer is as clear as day.
Until recently, Wall Street seemed downright giddy. The S&P 500 soared 28.5% between Jan. 1, 2024 and Feb. 18, 2025. However, the index has since fallen 7% from its peak.
Why? Probably the biggest reason is that investors are worried about the negative impact of the Trump administration’s proposed tariffs.
The interesting thing about all of this is that President Donald Trump is doing (or at least taking initial steps to do) exactly what he said he would do when he ran for a second presidential term. Trump promised tariffs; now he’s moving to implement them.
However, any hint of a reprieve from the levying of tariffs brings a sigh of relief from Wall Street. You might say the market is in a “hope/worry” cycle.
Meanwhile, most analysts still recommend buying the stocks that have led the bull market over the last couple of years or so. For example, 58 of the 63 analysts surveyed by LSEG in March view Nvidia as a buy or a strong buy, with the outliers recommending holding the stock.
This optimism isn’t limited to Nvidia. However, Wall Street remains generally positive despite a stock market that’s valued at historically high levels. Just look at the Shiller S&P 500 CAPE ratio. Despite a decline over the last few weeks, the valuation metric is still near its second-highest level ever.
Buffett hasn’t been nearly as bullish as Wall Street. That’s evident from his actions as the stock market soared.
For one thing, the multibillionaire investor has been a net seller of stocks for nine consecutive quarters. Sure, the “Oracle of Omaha” has continued to buy a few stocks. However, he isn’t finding much to his liking these days.
Buffett didn’t even authorize stock buybacks of Berkshire Hathaway in the fourth quarter of 2024. That’s striking, considering that Berkshire has repurchased at least some of its shares in every previous quarter over the last five years.
What Buffett has been doing, though, is building a massive cash stockpile. He attempted to downplay this in his recent letter to Berkshire Hathaway shareholders, stating, “Despite what some commentators currently view as an extraordinary cash position at Berkshire, the great majority of your money remains in equities.”
That’s true. However, it’s also true that Berkshire’s cash position of $334.2 billion is extraordinary (as the following chart shows).
Does Buffett know something that Wall Street doesn’t? Yes. And I think it can be summed up by one of his most famous statements: “We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful.”
Buffett understands that the best times to buy stocks are when they’re on sale. He clearly hasn’t thought that’s the case for a while, even though analysts continued to urge investors to buy stocks hand over fist.
Perhaps the most important thing Buffett knows that Wall Street seemingly doesn’t, however, is the importance of focusing on the long term. I doubt he’s worried about the impact of tariffs because he expects them to be temporary. As Buffett recently wrote to Berkshire shareholders about the stocks the conglomerate owns:
Over time, we think it highly likely that gains will prevail — why else would we buy these securities? — though the year-by-year numbers will swing wildly and unpredictably. Our horizon for such commitments is almost always far longer than a single year. In many, our thinking involves decades. These long-termers are the purchases that sometimes make the cash register ring like church bells.
You won’t hear many, if any, people on Wall Street making that kind of statement. But Buffett’s long-term perspective is the main reason why he has been so successful. The difference in his outlook versus Wall Street’s is truly as clear as day.
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Keith Speights has positions in Berkshire Hathaway. The Motley Fool has positions in and recommends Berkshire Hathaway and Nvidia. The Motley Fool has a disclosure policy.
Does Warren Buffett Know Something That Wall Street Doesn’t? The Answer Is as Clear as Day. was originally published by The Motley Fool
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2025-03-11 03:51:00